In the world of traditional finance, the month of September 2008 is etched in the mind, with the bankruptcy of Lehman Brothers reminding those who had forgotten that “too big to fail” did not exist. In the world of crypto-assets, we will remember the month of May 2022, with the fall of Terra/Luna followed by the climb that led to the bankruptcy of several platforms, and the month of November 2022, with the fall of Sam Bankman. -Frid, the “white knight” of crypto who whispered in the ears of regulators.
The climate of risk aversion to crypto-assets was exacerbated in early May 2022 by the crash of Luna and depp of its stablecoin UST, leading to the destruction of an ecosystem worth more than $40 billion and calling into question the usefulness of stable currency. Ironically, these stable currency which aimed to accelerate the mass adoption of cryptocurrencies by taming market volatility, provided a surprise test for critics of cryptocurrencies. Indeed, prior to the creation of Tether (USDT) in 2014, the only way for an investor to recoup their earnings was to convert their earnings to bitcoin first, then fiat currency second, in order to make a transfer in a bank account.
After the setbacks of Celsius Network, then called the “Lehman of DeFi”, or the difficulties encountered by Voyager Digital and BlockFi, FTX boss Sam Bankman-Fried (SBF) was seen as the savior of the industry by lending $250. million in BlockFi and the acquisition of Voyager Digital’s assets through Alameda Research. The latter did not hesitate to specify in September 2022 that there was a billion dollars to fly to the aid of companies in difficulty, so that they survive bear market.
FTX: domino effect and investigation to follow?
However, as the months passed, the popularity of the founder of FTX and Alameda Research melted like snow in the sun. Indeed, SBF is showing itself to be increasingly pro-regulatory as it has built its fortunes by taking full advantage of the dizzying returns of DeFi. The one who was seen as the consolidator of the crypto market is criticized for his hypocrisy before being exposed in the light of day for his mismanagement. Even FTX’s direct competitor, Binance, was unable to save FTX. After announcing his desire to come to the aid of FTX, Changpeng Zhao, CEO of Binance, was forced to back down in the face of the size of the financial hole currently estimated at around $8 billion, but also in view of impending justice. Department investigation. Alameda Research’s security vulnerabilities prompted Binance to begin holding FTT tokens, plunging the cryptocurrency deep into the red. Ultimately, such a takeover of FTX by Binance would have stopped the bleeding, but it would certainly have led to complications in the future in the face of increased centralization of trading platforms. A centralization at the opposite extreme of the ideals of cryptocurrency decentralization and that would have increased the systemic risk in this market.
As of this writing, the collapse of FTX is once again drawing the attention of cryptocurrency regulators and likely prompting them to intervene more aggressively. We can expect a lengthy investigation into FTX, testimony from Sam Bankman-Fried, and a domino effect that will likely shake up the cryptocurrency industry. There is a glimmer of hope that the situation is not as dire as the Luna crash last May. According to JP Morgan analysts, the current rate of bankruptcies will not be greater than the previous one. On the other hand, we can expect that other exchanges such as Kraken, OKX or even Binance will also be “backed by the wall” by regulators and forced to declare their guarantees and financial condition.